China as a Likely Source of Future Clean Tech Innovation

China as a Likely Source of Future Clean Tech Innovation

Chinese government took a number of important steps in 2014 that could make it an important hub for green innovation in upcoming years. Chinese Premier Li Keiqiang declared a “war on pollution,” including a set of goals to reach by 2018 and a number of financial incentives to go with them.

This anti-pollution drive makes it a good place for clean, inventive energy firms and startups to achieve scale. The Premier pledged $800 billion to this effort, which augments approximately $900 million in annual venture capital investment and $1 billion in private equity. This money will go toward stimuli for manufacturers to upgrade their plants and promotions of green and low-carbon technology. Clean technology startups and investors are also vying for a piece of that $800 billion pie. China directs funds toward clean energy companies, and has now taken a turn away from its protectionist patterns by opening up its energy conservation and environment protection industries to foreign and private investment. Though this policy comes with limitations, it signals a new willingness to work with the international community. Private equity investment in the environmental sector continues to grow and China’s State Council aims for the industry to grow to $730.5 billion by the end of this year.

There is already news of early success stories: Durham, North Carolina-based Phononic Devices received an investment from Beijing-based VC firm Tsing Capital. Bill Gates teamed up with California VC firm Khosla Ventures and Chinese carmaker FAW Group to build a factory in Shanxi that will produce 100,000 new two-stroke engines a year, which are 45% more fuel-efficient that commonly used four-stroke engines and will be made for diesel, petrol, and methanol. The Dutch dust-control company Wuvio, which recently arrived, consults construction companies and transportation firms across the countrry. Texas-incorporated battery company Microvast joined with local bus companies to pilot lithium titanate batteries, which last up to ten times longer than lithium ion and take 10 minutes to charge.

In the midst of such exciting news, it is important to remain aware of some of the downsides for IP amongst these developments. Unfortunately, Chinese firms do not pay much for intellectual property and copy it when they figure out how. Second, the above-mentioned financial incentives are limited to companies which fit within and benefit China’s prescribed corporate ecosystem. An example of this is Tesla Motor’s recent arrival in China. This American electric-car firm, with cutting-edge clean technology, has no benefit from potential subsidies and tax breaks because its model of importing vehicles does not enrich Chinese firms of transfer intellectual property to local ventures.